Personal Insolvency Options

Bankruptcy is for individuals in a hopeless financial position and enables them to obtain relief from the pressure of their creditors and be given the opportunity of making a fresh financial start after the bankruptcy period of 3 years.

Bankruptcy also allows for the fair and equitable distributions of a persons assets to their creditors and to enable an investigation into the conduct and affairs of the bankrupt or causes of bankruptcy.

The usual period of bankruptcy is 3 years however if the Trustee objects, the bankruptcy can be extended for a period up to 8 years.

A bankruptcy can also be for a period of under 3 years where a resolution is passed by creditors accepting a bankrupt's proposal resulting in an annulment under Section 74 of the Act.

A person may become bankrupt in 2 ways.

• A sequestration order made by the court - involuntary bankruptcy - this process is commenced by an unpaid creditor
• The presentation of a debtors petition - voluntary bankruptcy - this process is commenced by the individual who is suffering grave financial stress and seeks relief and protection afforded by the Bankruptcy Act.

Once a person becomes bankrupt, their assets, or property, with certain exceptions (compensation for personal injury, superannuation (generally), tools of trade and basic furniture and effect), vests in the Trustee in Bankruptcy whose job it is to then recover the property of the bankrupt for the benefit of creditors and to determine whether the bankrupt has improperly disposed of assets prior to bankrutpcy. Other effects of bankruptcy are;

• The bankrupt will be required to make contributions to the payment of their debts from income earned during the bankruptcy period once their income exceeds a certain level. Non payment of the contribution is likely to lead to an extension of the bankruptcy period from 3 years up to a maximum of 8 years.
• The Trustee will in most cases sell the bankrupt's home.
• A bankrupt must surrender his/her passport to the Trustee and if travel is required in the period, the bankrupt will need to make a good case to the Trustee to be allowed to leave the country.
• A bankrupt must disclose to anyone from whom they apply for credit of $4,692 or more that they are an undischarged bankrupt.
• A bankrupt is precluded from managing a corporation or being a director during the bankruptcy.
• A bankrupt cannot own a car with a value in excess of $7,050
• Assets that form part of the bankruptcy include a bequest made under a will or a lottery win.
• The bankrupt is subject to the directions of the Trustee who must be attended upon as often as the Trustee reasonably requires.
• The bankrupt must produce his books and records to the Trustee and can be examined before a registrar on those records and dealings generally
• Fines or penalties imposed by a court are not affected by bankruptcy. Nor are council and water rates.
• HECS debts are not waived by reason of bankruptcy. Similarly, child maintenance orders must be paid.

No - a bankrupt cannot be a director of a company for the period of the bankruptcy. Further, a bankrupt is prohibited from managing a corporation for the period of the bankruptcy.

Credit reporting agencies will record personal bankruptcy for 7 years however, as a bankruptcy is recorded on the National Personal Insolvency index - a permanent public record it is possible the decision to become bankrupt may affect you for an extended period of time.

A Trustee in Bankruptcy administers a bankruptcy and his role is to

• ensure the fair and equitable distribution of a persons assets to their creditors
• to investigate the conduct and affairs of the bankrupt
• to determine the causes of the persons bankruptcy

A Bankrupt is required to make contributions to the Trustee of their estate where their annual income exceeds the following amounts;

No# of Dependents       Income Limit (After Tax)

0                                $47,265.40
1                                $55,773.17
2                                $60,027.06
3                                $62,390.33
4                                $63,335.64
over 4                         $64,280.94

Contributions are payable by the bankrupt once the above thresholds are exceeded.

Contributions are 50 cents in every dollar (after tax) once the threshold amount is passed.